Potentiality Of Fdi Inflow In Bangladesh

4643 words - 19 pages

POTENTIALITY OF FDI INFLOW IN BANGLADESH

1. INTRODUCTION

Foreign Direct Investment (FDI) is considered as one of the crucial ingredients for fostering economic development of a developing country. Countries that are lagging behind to attract FDI are formulating and implementing new policies for attracting more investment. Even compared to other South Asian countries, FDI inflow to Bangladesh has traditionally been lower.

Foreign direct investment (FDI) is investment directly into production in a country by a company located in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct ...view middle of the document...

4. MAJOR DETERMINANTS OF FDI INFLOW

Foreign investors invest in developing countries primarily to take advantage of the low cost of land and labor in developing countries, to gain access to their domestic markets and to take advantage of developing countries‟ comparative advantage for diversifying their production and investments. Some of the key characteristics of host countries that are crucial in determining the flows of FDI are highlighted below:

1. Cheap and efficient labor in developing countries.
2. Good transportation and communication networks.
3. Macroeconomic and political stability.
4. Large domestic market for goods and services, sustained rates of growth in these markets and also access to regional markets.
5. Efficient policy and regulatory environment and a positive attitude of government and investment promotion agencies

Advantage:
1. FDI allows transfer of capital and technology, which is not possible through financial investment in goods and services.
2. FDI also promotes competition in the domestic input market
3. Profits generated by FDI contribute to the corporate revenue in the host country
4. Operation of new ventures by FDI leads to employee learning in the host country that learns how to manage and operate the businesses. This contributes to human capital development of the host country.
5. Profits generated by FDI contribute to tax revenues in the host country

6. BANGLADESH: A NATION FOR FDI

Foreign Direct Investment (FDI) is considered as one of the crucial ingredients for fostering economic development of a developing country. Countries that are lagging behind to attract FDI are formulating and implementing new policies for attracting more investment. Even compared to other South Asian countries, FDI inflow to Bangladesh has traditionally been lower.

Bangladesh invites FDI in joint ventures as well as in arrangements like technical licensing, counter trade, co-production agreements, management agreements, marketing assistance, turnkey operations, and combined turnkey and management contracts. Incidences of technical collaboration are in evidence in sectors like cigarette, chemical and pharmaceuticals (with UK firms), electric goods (with South Korean firms), standard paints (with Thai firms) etc. Marketing collaboration has occurred with sterling zone companies in the tea industry and in readymade garment industry. Licensing agreement is predominant in chemicals and pharmaceuticals sectors. A number of indigenous firms produce TNC brand products under license but without equity participation.

The cultural environment in Bangladesh has a number of elements that can be identified as favorable for FDI. The population has a high degree of ethnic and communal harmony. Conservatism on religious grounds is not extreme and foreigners are exempted from restrictions on this count. Major political parties of the country have almost identical economic programmes. All of...

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